Gold Mining Stocks Are Beating Bullion: A Win-Win

For the first time in at least a couple of years, gold mining stock returns
are outpacing those of the yellow metal itself.

As you can see in the chart below, the NYSE Arca Gold BUGS Index has given
back 22.31 percent year-to-date (YTD), whereas gold has delivered 7.74 percent.

This is good news for both equities and bullion. When miners are doing well,
gold tends to follow suit. Indeed, since the beginning of the year, spot gold
has seen steady growth following a lackluster 2013. As I noted earlier
in the month, it's been one of the best-performing commodities of the year
so far, a mere nugget's throw behind nickel and palladium.

Miners restructuring their business strategy

Gold mining, to be sure, is a tough gig. When gold prices are between $1,000
and $1,200 an ounce, miners barely break even in terms of cash flow.

Last year was particularly brutal. The metal plunged 28 percent--from $1,675
to about $1,200--which was the largest annual drop since 1981.

To reduce risk, many companies have cut costs in several ways. Some have decreased
capital spending. Others have sold off assets. Others still have placed exploration
on standby.

Case in point: Comstock Mining Inc., a young mining company which we own in
our Gold and Precious Metals Fund (USERX), has
managed to shrink operating expenses from $4.4 million this time last year
to $3.8 million, mostly by lowering legal and advisory expenses. Other realized
annual savings have come from administration and staff reductions.

In a recent interview with The
Gold Report, U.S. Global Investors portfolio manager Ralph Aldis addressed
the company's rising success:

Comstock started production over a year ago at about 10,000 ounces a
year. It doubled that and now it's targeting a 40,000-ounce run rate in
H2/14... The company has permits to reach 4 million tons per year so Comstock
should be a 100,000-ounce producer by 2016. It's a situation where people
are creating value and [Chairman of the Board] John Winfield knows how
to make money.

Time to wake up to gold-diggers

An equity that has performed exceptionally well this year is Klondex Mines
Ltd., headquartered in Nevada. Not only does it represent the largest position
in both USERX and our World Precious Minerals Fund (UNWPX), but
we also own it in our Global Resources Fund (PSPFX).

One of the main reasons we're so fond of the stock is that in 2013, when the
Market Vectors Junior Gold Miners Index was down 61 percent, Klondex was up
28 percent. It's currently up 30 percent YTD and is targeting free cash flow
(FCF) by the end of the year.

"This is a great story," Ralph said in the same interview. "Most people haven't
woken up to it yet."

Royalty companies are thriving as well

Other players in the gold space that have flourished in this climate are royalty
companies, which provide upfront capital to miners in exchange for a stake
in future output. Since royalty companies avoid the costly rigmaroles gold
miners must deal with on a regular basis--securing permits and building infrastructure,
among others--they often receive a healthy return on their investments.

Two such companies are Franco-Nevada Corporation, based in Toronto, and Royal
Gold, based in Denver. We own both in USERX, UNWPX and PSPFX, as well as our
All American Equity Fund (GBTFX) and
Holmes Macro Trends Fund (MEGAX). Whereas
Franco-Nevada has risen 42 percent YTD, Royal Gold has leaped 70 percent.

Looking ahead

Gold might have taken a minor hit this week, but autumn is right around the
corner, when the gold jewelry industry traditionally replenishes its stock.
And with unrest in Ukraine and the Middle East continuing to drive the fear
trade, as unfortunate as these events are, gold prices appear buoyant.

This bodes well not only for investors in bullion but also mining companies,
which will likely proceed with cost-cutting initiatives to maintain or expand
margins.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors,
Inc., which manages a diversified family of mutual funds and hedge funds specializing
in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and
certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing
global natural resources fund in 2010. In 2009, the World Precious Minerals
Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four
years for that achievement. In addition, both funds received 2007 and 2008
Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a
leading publication for the global resources industry, and he is co-author
of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve
global conflict, and the William J. Clinton Foundation on sustainable development
in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator
on financial television. He has been profiled by Fortune, Barron's, The Financial
Times and other publications.

Please consider carefully a fund's investment objectives, risks, charges and
expenses. For this and other important information, obtain a fund prospectus
by visiting www.usfunds.com or by calling
1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed
by U.S. Global Brokerage, Inc.